global mutual fund market - final

8/4/2019 Global Mutual Fund Market - Final

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Mutual Funds market

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:ontents .Mutual Funds Basics

.Mutual Funds Evolution

.Global Mutual Fund Market A Quantitative Study

.Global Mutual Fund Market A Qualitative Study

.Mutual Funds The Indian Scenario


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:utual Funds BasicsThe Mechanism


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:utual Funds Basics&Sponsor AMC


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:utual Funds BasicsTrustee


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:utual Funds BasicsOther Entities


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The price of each unit is known as NAV

NAV on any day, reflects the value of thefunds investments divided by the number ofunits issued by the fund. Customerspurchase and sale price are based on thisamount

:utual Funds BasicsNet Asset Value


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:utual Funds Basics.Classification of Mutual Funds


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:lobal Mutual Funds Market A QuantitativeStudyNumber of Mutual Funds World Wide

: . .Source www ici org

, , ( )umber of Mutual Funds Region Wise 2010 Q4


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:lobal Mutual Funds Market A QuantitativeStudyNumber of Mutual Funds World Wide A Comparative Study



:lobal Mutual Funds Market A QuantitativeStudy, ( ) Growth In Number of Mutual Funds 2010 Q4 Developed Economies



:lobal Mutual Funds Market A QuantitativeStudy, ( ) Growth In Number of Mutual Funds 2010 Q4 Developing Economies



Total Net Asset UnderManagement in Billion US$

( )World

:lobal Mutual Funds Market A QuantitativeStudyTotal Assets Under Management



:lobal Mutual Funds Market A QuantitativeStudyTotal Assets Under Management A Comparative Study



:lobal Mutual Funds Market A QuantitativeStudy.Growth in Total Assets Under Management Country Wise



+ . %3

- . %68 - . %12+ . %5

( )rowth In Total Net Asset Value By Type Of Fund in Billion US$

(istribution of World Wide Mutual Funds By Type)f Asset

:lobal Mutual Funds Market A QuantitativeStudy.Classification By Types Of Funds



:lobal Mutual Funds Market A QuantitativeStudy( ) .Total Net Asset Value By Type Of Fund Developed Economies



:lobal Mutual Funds Market A QuantitativeStudy( ) .Total Net Asset Value By Type Of Fund Developing Economies


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INDIA UK US China Australia

No entry load be

charged for all MFschemes launched on orafter August 1, 2009

Front end charge of

about 5% of the netassets

Entry loads are charged

to investors of open-ended MF schemes. Noton close-ended.

Fund houses charge

entry loads for MFinvestors.

No concept of Entry

Load charged by theMFs to the investors.

Distributer receivecommission from the

investors based ininvestors assessment ofvarious factorsincluding servicerendered.

Distributers are paidcommission (typically

3%) out of 5% by theMFs. Entitles to receivea trail commission ofaround 0.5%of the netasset annually.

For close-endedschemes, the investor

pays commissiondirectly to thedistributer of MFscheme

The commission todistributers are borne by

the investors as themutual fund paysdistributors from theloads charged to theinvestors in the scheme.

Distributers are paidcommission by the

MFs.

Exit load may or maynot be charged to theinvestors depending onthe period they stayinvested.

Exit fees are also beingcharged by few fundhouses to investors onredemption of MF units.

Exit loads are chargedto investors of open-ended MF schemes. Noton close-ended.

Fund houses charge exitloads for MF investors.

No concept of ExitLoad charged by theMFs to the investors.

:lobal Mutual Funds Market A QualitativeStudy&Entry Exit Load


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India UK US China Australia

There exist statutory

limits defined by SEBIfor payment ofmanagement andadvisory fees to theAMC

There exists no cap on

the management fees tothe AMC other thanthose stipulated in eachfunds scheme

prospectus.

No statutory limits are

prescribed, but it isensured that the AMCdoes not earn an unfair

profit from the advisorycontract.

Statutory caps are fixed

for advisory feespayable to the AMCsdepending on the type offund

No pre-defined statutory

caps on the fees payableto AMCs.

The advisory feespayable are caped at1.25% for Net Asset 100 crores

Fees varies on the typeof funds and are usuallyabout 1.5% of the netassets or an actively

managed equity fund.

AMC fees typicallyrange between 0.5% to1.75% of the net assetsdepending on the type of

the fund.

For equity based funds,the AMC fees arecapped at 1.5%, whilefor index, debt based &

money market funds,capped at 0.5-0.7%, 0,6-1.2%, 0.33% resp. of the

NA

The fees payable vary,inter alia, depending onthe type of the fund.

:lobal Mutual Funds Market A QualitativeStudyManagement Fee To AMC


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The distributors of the

MF units are notseparately regulated bySEBI or any otherregulatory authority.

Distributors in UK are

regulated by theFinancial ServicesAuthority

Distributors in the US

are regulated by theSecurities Industry andFinancial MarketsAssociation.

MF distributors are

regulated and authorizedby China SecurityRegulation Commission

The Australian

Securities andInvestmentsCommission regulatesthe distributors inAustralia

SEBI is in discussion tointroduce a morestringent certification

program for alldistributors of the MFschemes.

There is a regulationbeing proposed that willrequire distributors ofMF units to undertakecertain examinations.

Distributors are requiredto pass the securities

broker-dealer exams inorder to cell units ofMFs.

No specific certificationis required to beobtained by thedistributors to entitlethem to provide

professional advice toinvestors in MFSchemes.

:lobal Mutual Funds Market A QualitativeStudyRegulation Of Distributers


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MFs are treated as apass-through entity andhence are not liable totax.

In the hand of MF,capital gains are taxexempt.

Funds are pass-throughentities and only theinvestors pays tax uponreceipt of income orcapital gaindistributions by thefund.

In order to promote MFindustry, the taxauthority in China givesnearly full taxexemptions to MF andinvestors.

MFs are treated as apass-through entity andhence are not liable totax.

:lobal Mutual Funds Market A QualitativeStudyTax Implications


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utual Funds The Indian ScenarioThe Growth Story

UTI was establishedon 1963 by an Actof Parliament

The first schemelaunched by UTI

was Unit Scheme.1964 At the end

of 1988 UTI had. ,Rs 6 700 croresof assets under

.management

Public sectormutual funds set

up by publicsector banks and

& .LIC GIC,At the end of 1993

the mutual fundindustry had

assets undermanagement of

. , .Rs 47 004 crores

First Mutual FundRegulations came

,into being underwhich all mutual,funds except UTI

were to beregistered and

.governed The 1993 SEBI

( )Mutual FundRegulations weresubstituted by a

more comprehensiveand revised MutualFund Regulations

.in 1996At the end of

,January 2003 therewere 33 mutualfunds with total

.assets of Rs, , .1 21 805 crores


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utual Funds The Indian ScenarioKey Highlights

( ) %Assets Under Management AUM have managed to record a compounded growth of 28

-over 2006 2010AUM of Equity Funds and Balanced Funds where retail investors invest have only

%grown by 20 in the same period / -The net sales of Equity Balanced funds in 2009 10 have been one of the lowest in

recent years

%Accounts for less than 4 of household savings in IndiaAssets under management as a percentage of GDP is less than 5 per cent in India

,as compared to 70 per cent in the US 61 per cent in France and 37 per cent inBrazil ,Since the 1990 s when the mutual fund space opened up to the private sector the

, ,industry has traversed a long path adapting itself continuously to the changesthat have come along ( ) ,Growth in Assets Under Management AUM experienced has been unprecedented

% ,growing at a CAGR of 28 over the last four years slowing down only over the,last two years as a fallout of the global economic slowdown and financial crisis


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Some of the other trends which have emerged strongly over the past yearare heavy outflows triggered by market volatility and partnering of asset

,management companies with banks to increase the strength of distribution.networks

,Developments on aspects of entry load management fees paid to asset

,management companies regulation of distributors and taxation of mutual,funds from the investor point of view are some of the areas whichdeserve to be given attention

utual Funds The Indian ScenarioKey Highlights


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utual Funds The Indian Scenario

The rationale behind institutional sales claiming such a large chunk of theAUM pie is the benefit

.of tax arbitrage and lack of short term investment options , When compared with economies like US and China investments channelized

,through corporates% % ( ),comprise only around 15 and 30 of the assets under management AUM

.respectively

&HNI segment especially in Tier 2 Tier 3 cities has expanded creating a poolof investible sur lus


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utual Funds The Indian Scenario/Mutual Fund Investments v s FII Investments In India


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-Under penetrated populationInaccessibility in smaller towns

and cities due to lack of an

efficient distribution networkHeavy reliance on institutionalsales Low financial literacy levels andCost pressures emanating as a

result of inefficiencies in systemsand processes

utual Funds The Indian ScenarioKey Challenges


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iscount Brokers - They will serve customers ata

,nominal fee earning commissions from the AMC in addition to receiving trail commissions

irectly from AMC - This model is apt if the customer is able to identify the type of fund

that he wants to invest in

dvisory Model - This model functions on feespaid

to financial advisors for advice rendered by.them

Link with an advisory model is more likely topave

,the way for long term benefits aiding ingaining more

.market share

utual Funds The Indian ScenarioBusiness Model To Sustain Profitability


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utual Funds The Indian Scenario& .Reaching Out To Tier II Tier III Cities

In India around 65% of savings are with banks or post office deposits and cash at

home, while 23% are invested in real estate and gold and only 12% ischannelized towards financial instruments.

Thus, manifesting tremendous opportunity for growth in mutual funds. Diversity of Indian culture implies that different models need to be explored and

executed in order to make a breakthrough in these smaller towns.

A few banks intended to adopt the hub-and-spoke model, gradually adding

locations to each hub, where the could perhaps cater to 2-3 location each.

Emergence of stock exchange platforms is seen as a suitable means to increase

penetration levels of financial assets and thus mutual funds.

Targeting the HNI segment, some organizations plan to introduce Wealth Cafes

across the nation, catering solely to the requirements of HNIs.

To lure customers into capital markets, AMCs are pursuing investors to look upon

gold Exchange Traded Funds (ETF) as an exciting offer.


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utual Funds The Indian Scenario.Spreading Awareness Among The Investors

Introducing innovative products.

Investor education programs should be customer oriented with emphasis on therisk appetite of investors rather than simply a demonstration of the range ofproducts.

Products should be designed to bolster income levels of the rural segment andalso increase there spending capacity.

Mapping the requirements of investors today to a hierarchy of needs (akin toMaslows model), the new age investor demands higher rate of return, moretransparency and most importantly the freedom to choose from a wide rangeof product alternatives.


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utual Funds The Indian ScenarioRecent Developments In The Indian MF Sector

FIIs Allowed to invest in Mutual Funds

KYC, routes other than Mauritius and distribution needs to be addressed

W.e.f. August 1, 2009, SEBI banned the entry load (SIP excluded) that wasdeducted from the invested amount, and instead allowed customers the rightto negotiate and decide commissions directly with distributors based oninvestors assessment of various factors and related services to be rendered

Higher distributor commission on Unit Linked Insurance Products (issued by

Insurance companies) is giving tough competition to the business of mutualfunds

SEBI is considering a new incentive structure for agents that might involve a

service fee for distributors and a commission paid by the funds. In return, thedistributors would have to submit to stricter supervision.


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o Additional Management Fees on schemes launched on no loadbasisSEBI has scrapped the additional management fee of %1 charged byAMCs on schemes launched on a no load basis leading to a further

squeeze in margins earned by the AMC :irect Tax Code Implications

,Unlike the extant tax provisions DTC does not provide for any,benefit for investment in equity linked savings scheme and also

proposes to increase the compliance in the hands of MFs by wideningthe scope of deduction of tax to include payments made to.residents

It is unclear whether the income earned will be xempt oraxed ,in the hands of the investors on accrual basis as stated in.the Discussion Paper on the DTC

isclosure of Investor Complaints in the Annual ReportIn order to improve the transparency in the grievance redressal,mechanism SEBI has recently issued a Circular that requires MFs to

include details of investor complaints in their Annual Report as,part of the Report of the Trustees beginning with the annual

- .report for the year 2009 10 MFs provide abridged booklets of theAnnual Reports to all the unit holders


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( )und of Fund FoF schemes

SEBI has issued directions stating that since thesearrangements create conflict of interest, AMCs shall be prohibitedfrom entering into any revenue sharing arrangement with the

underlying funds in any manner and they have been prohibited from/receiving any revenue by whatever means head from the underlying

fund

,Further SEBI is also in discussions to raise the AMC fees from. %the present cap of 0 75 of the net assets in the case of FoFschemes


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utual Funds The Indian ScenarioThe Way Forward

Diverse range of products ,In US MFs provide products that cater to the entire life cycle of theinvestor

Regulation of MF distributors

-Recommendation to re visit the eligibility norms of AMCs ,Amongst other recommendations the key ones are relating to increase in

the minimum net worth of AMCs from the existing . .Rs 10 crores to Rs 50croreschange in the definition of net worthsponsor to be a regulated entity and change in definition of control

Trading through stock exchange platform , While trading through the stock exchange the investor would get to know

about the validity of his order and the value at which the units would get/credited redeemed to

.his account by the end of the day

, , Whereas while investing through MF distributor or directly with the MF

the investor gets information of the subscription and redemption details/only in the form of direct communication from the MF AMC

, ,Thus by trading through the stock exchange the investor would be able tooptimize his investment decisions due to the reduced time lag in themovement of funds

Real estate Mutual Funds


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global mutual fund market - final

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